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What is investment?

29.2 Determinants of Investment

❶Explain why the consideration of opportunity costs may be very relevant to a firm. What is investment and why one should invest?

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Other Determinants of Investment Demand
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During recessions, the capacity utilization rate tends to fall. The fact that firms have more idle capacity then depresses investment even further. During expansions, as the capacity utilization rate rises, firms wanting to produce more often must increase investment to do so.

The demand curve for investment shows the quantity of investment at each interest rate, all other things unchanged. A change in a variable held constant in drawing this curve shifts the curve. One of those variables is the cost of capital goods themselves. If, for example, the construction cost of new buildings rises, then the quantity of investment at any interest rate is likely to fall.

The investment demand curve thus shifts to the left. Firms have a range of choices concerning how particular goods can be produced. A factory, for example, might use a sophisticated capital facility and relatively few workers, or it might use more workers and relatively less capital.

The choice to use capital will be affected by the cost of the capital goods and the interest rate, but it will also be affected by the cost of labor. As labor costs rise, the demand for capital is likely to increase. Our solar energy collector example suggests that energy costs influence the demand for capital as well.

If these prices were higher, the savings from the solar energy system would be greater, increasing the demand for this form of capital. The implementation of new technology often requires new capital. Changes in technology can thus increase the demand for capital. Advances in computer technology have encouraged massive investments in computers. The development of fiber-optic technology for transmitting signals has stimulated huge investments by telephone and cable television companies.

Public policy can have significant effects on the demand for capital. Such policies typically seek to affect the cost of capital to firms. The Kennedy administration introduced two such strategies in the early s.

One strategy, accelerated depreciation, allowed firms to depreciate capital assets over a very short period of time.

The second strategy was the investment tax credit, which permitted a firm to reduce its tax liability by a percentage of its investment during a period. Though less direct, a third strategy for stimulating investment would be a reduction in taxes on corporate profits called the corporate income tax. Greater after-tax profits mean that firms can retain a greater portion of any return on an investment.

A fourth measure to encourage greater capital accumulation is a capital gains tax rate that allows gains on assets held during a certain period to be taxed at a different rate than other income. When an asset such as a building is sold for more than its purchase price, the seller of the asset is said to have realized a capital gain.

Such a gain could be taxed as income under the personal income tax. Alternatively, it could be taxed at a lower rate reserved exclusively for such gains. A lower capital gains tax rate makes assets subject to the tax more attractive.

It thus increases the demand for capital. A proposal to eliminate capital gains taxation for smaller firms was considered but dropped before the stimulus bill of was enacted. Accelerated depreciation, the investment tax credit, and lower taxes on corporate profits and capital gains all increase the demand for private physical capital. Public policy can also affect the demands for other forms of capital. The federal government subsidizes state and local government production of transportation, education, and many other facilities to encourage greater investment in public sector capital.

Show how the investment demand curve would be affected by each of the following:. To try to spur growth, Congress, supported by President Bush, passed a law in called the American Jobs Creation Act that gave businesses a one-year special tax break on any profits accumulating overseas that were transferred to the United States. Did the tax break have the desired effect on the economy? To some extent yes, though business also found other uses for the repatriated funds.

Some companies announced they were repatriating profits and continuing to downsize. Analysts are skeptical, though, that the repatriated profits really contributed to investment. The New York Times reported on one study that suggested it had not. Rather, the repatriated funds were used for other purposes, such as stock repurchases.

The argument is that the companies made investments that they were planning to make and the repatriated funds essentially freed up funding for other purposes. Creative Commons supports free culture from music to education. Their licenses helped make this book available to you. Help a Public School. Discuss the factors that can cause an investment demand curve to shift.

Interest Rates and Investment We often hear reports that low interest rates have stimulated housing construction or that high rates have reduced it. Other Determinants of Investment Demand Perhaps the most important characteristic of the investment demand curve is not its negative slope, but rather the fact that it shifts often.

Expectations A change in the capital stock changes future production capacity. The Level of Economic Activity Firms need capital to produce goods and services. The Stock of Capital The quantity of capital already in use affects the level of investment in two ways.

Capacity Utilization The capacity utilization rate A measure of the percentage of the capital stock in use. The Cost of Capital Goods The demand curve for investment shows the quantity of investment at each interest rate, all other things unchanged.

Other Factor Costs Firms have a range of choices concerning how particular goods can be produced. Technological Change The implementation of new technology often requires new capital. Public Policy Public policy can have significant effects on the demand for capital. Key Takeaways The quantity of investment demanded in any period is negatively related to the interest rate.

This relationship is illustrated by the investment demand curve. A change in the interest rate causes a movement along the investment demand curve. A change in any other determinant of investment causes a shift of the curve. The other determinants of investment include expectations, the level of economic activity, the stock of capital, the capacity utilization rate, the cost of capital goods, other factor costs, technological change, and public policy. Show how the investment demand curve would be affected by each of the following: A sharp increase in taxes on profits earned by firms An increase in the minimum wage The expectation that there will be a sharp upsurge in the level of economic activity An increase in the cost of new capital goods An increase in interest rates An increase in the level of economic activity A natural disaster that destroys a significant fraction of the capital stock.

Answers to Try It! Problems The investment demand curve shifts to the left: A higher minimum wage makes labor more expensive. Firms are likely to shift to greater use of capital, so the investment demand curve shifts to the right: The investment demand curve shifts to the right: The investment demand curve shifts to the left: An increase in interest rates causes a movement along the investment demand curve: The need to replace capital shifts the investment demand curve to the right: Then, subtract the original cost from the current cost.

Finally, divide the gain made on the investment by the originalcost. What are the determinant of investment? There are several determinants of investment. They include, thereturn on the investment, the interest rate, and the taxes chargedon the returns. How does a financial institution determine when to withhold tax on investment income?

A financial institution will determine if it should withhold tax ona investment if it receives notification from the IRS to do so.

Once a social security number or tax payer identification number isprovided, the IRS is notified to verify no withholding is required. What factors that determine the level of investment? One factor that determines the level of investment is the amount ofdisposable income available. Another factor is the amount ofexpenditure. I need 2 deterine what tree farm to invest in and farm a planted trees15 of them died and farm b planted trees 48 of them died how would i determine absolute comparison don't understand?

Well on the farm with trees 15 dies while the farm with trees 48 died or 12 out of a , making the farm with trees have a better survival rate for the trees. Who invested the television? John Logi Baird, a scotsman, is often credited with the invention. However, he was one of many who worked on the development of television. There are many other names who contributed to the early television and it is probably better to refer to television as a development, rather than a single invention..

A web search will produce many full histories of early television, from the first mechanical systems to the commercial broadcasts of the s and s. Definitions of determined on the Web:. In set theory, a branch of mathematics, determinacy is the study of under what circumstances one or the other player of a game must have a winning strategy, and the consequences of the existence of such strategies. A fake that began circulating in in late ' It was supposed to be a duet with Kurt and Courtney and in my opinion it do sound a lot like Courtney, but don't be fooled - it's fake.

Determined means that a person will not give up or quit even whenthings become very difficult. If the person sets out to dosomething they will do everything they can to be sure they succeedin doing it.

What are unquoted investments? A good investment is something that you put effort, time, andenergy into. In hopes that it will return to you multiplied. Which financial ratio analysis will you use to determine where to invest your money? There are various financial ratios that can help you to assess where to invest your money.

A combination of different ratios may help you see the wider picture and help you to decide, if you want to, how to achieve the greatest gain with the lowest risk. Some of these ratios would include: In addition to considering financial ratios, one should also carefully consider the calibre of the management, the history of the company and their success in quickly adapting to changing economic realities.

You should also consider future expectations of the market you are investing in, and your target company's place in that market. And you should assess the competition, and the global economy, and the environment, politically and 'environmentally', in which the business currently operates, and the environment it which it will have to operate in the foreseeable future.

The role of the interest rate in the determination of the level of investment in the Nigerian economy? Determiners are things, or people, that makes decisions forsomething or someone else. They are sure to be followed by a noun. One of the things you should consider when determining the time frame of your investment goals is?

You should always first consider your long term objective and risktolerance when determining the time frame of your investment goals. Understanding if you are conservative or a gambler will determinehow much and which investments to consider. Invest is to put money into a business with the goal of profiting from this investment.

Disadvantages in investing equity investment? Actual investment and planned investment? It's pretty much as it sounds. For help with any future investment http: Basic determinants of investment? The immediate determinants of investment are: What is growth investment and income investment? Growth investing is when you buy stock in small or midsize companies in the hope that the price of the stock will increase as the company grows and more people buy the stock.

Then later you can sell the stock at a profit. An income investment is when you purchase a stock, bond or treasury and you receive a payment in return for your investment. In the case of bonds and treasuries you get interest payments, similar to a savings account. In the case of stocks you receive dividends. What do investments do for you? The most common idea behind the investment is to increase yourearnings in some sort of profit.

The investment in the real estate is the safest way toincrease your earnings. Tony has just come into a significant inheritance and decides to invest in stock in a solid stable company which financial ratio is the most helpful in determining where he invests?

Profitability ratio is wrong ans can some some one help me to get right ans please. What can a determination do? Determination is one the greatest assets we can possess. Determination is the tool we use to overcome temporary failure to prevent failure from becoming permanent. Determination is the tool we use to give us the will to win. Determination is the tool we use to help us win in spite of our limitations.

Determination is the tool we use to dig ourselves out of a hole. Determination is the tool we use to improve our relationships. Determination is the tool we use to reach our goals. Determination is the tool we use to succeed. Determination can bring out the best in us. Determination is the tool we use to produce patience. Determination is the tool we use to feed our faith and starve our doubts to death.

And these are just a few examples what a determination can do. There are more things that have determination but this is a very good example to what a Determination is. You have 5K to invest what should you invest in? I bought some and it went up a hair below five percent in three weeks.

Then in eight days it ended up below where I bought it. Today it's up some. Baidu is the Chinese version of Google. One website you should check out is Yahoo Finance. The name may not turn you on, but never mind. It will show yo a squeggly line and you will be able to compare your stock to one other stock. That will get you two squiggly lines on the same graph. You can compare any two stocks this way, and if you explore around the Web page, you will find that you can compare them for one day, five years, etc.

I challenge you to find a stock that has out-performed Baidu over five years. Why investment in bond is the best investment? Investment in bonds when done wisely and with expertise brings in the best profit so its best kind of investment. But then for for good investment and prediction choose an expert. Insight technical has ample of experience and knowledge for this purpose.

More queries feel free to call Mr. Praveen Agrawal at or drop in your query at contact insighttechnical. Determine the per annum interest rate r required for an investment with continuous compound interest to yield an effective rate of 4. We still need to know how often the interest is compounded What does "continuous" mean? What is the importance of cash flow timing in determining the present and the future value of an investment?

Since the valuation of cash flows takes the amount of time to discount or compound into consideration, the timing of the cash flows plays an important role in determining both present and future value of those cash flows in an investment. For example, a cash flow occurring one year from now will be discounted less than a cash flow taking place five years from now. What investment options do you get and what are they?

They give certain options usually to stay within your price range. Return on investment and safety of investment? Return on investment is the amount of profit on the invested money after deducting taxes, safety of investment is the risk factor involved in the investment. Such as risk is high safety of investment is less. How you can invest in gold? There are five different ways or categories in which you can invest in relation to gold in one way or another: Gold ETF's - electronically traded funds.

An ETF is actually investing in a set or group of stocks.. Gold based Mutual Funds - A large collection of individual stocks held collectively as one single investment instrument.

Junior Stocks - investing in companies that are looking for gold or exploring in search of gold.

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This section examines eight additional determinants of investment demand: expectations, the level of economic activity, the stock of capital, capacity utilization, the cost of capital goods, other factor costs, technological change, and public policy.

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Investment Demand: Types, Meaning and Determinants! Levels of national income and employment in the short run depend upon the level of aggregate demand. In the Keynes’s two sector model aggregate demand consists of two constitu­ents-consumption demand and investment demand. Since consumption.

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The investment demand curve shows the volume of investment spending per year at each interest rate, assuming all other determinants of investment are unchanged. The curve shows that as the interest rate falls, the level of investment per year rises. The Macroeconomic Determinants of Investment: Empirical Evidence from Bangladesh. Md. Zobayer Bin Amir, Tabassum Zaman, Mohammad Afshar Ali Abstract- Economic wisdom of investment of economics enumerates that there has been a causal nexus between investment and other macroeconomic variables. This study draws on.

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The main determinants of investment are: The expected return on the investment This means that businesses, entrepreneurs, and capital owners will require a return on their investment in order to cover this risk, and earn a reward. ARROW, K. J* Alternative approaches to the theory of choice in risk-taking situations, ECONOMETRICA, October, * comprehensive survey of work doaie on theory.